State of Oklahoma Real Estate Portfolio Strategy - PowerPoint Presentation

1. State of OklahomaReal Estate Portfolio StrategyEXECUTIVE SUMMARYDecember 2020

2. 1Develop a comprehensive strategic real estate plan for the State of Oklahoma’s office portfolio in Oklahoma City and Tulsa. The plan includes:Key findings and recommendations,Detailed implementation plans and strategies, A cost benefit analysis, and Impediments and success factors to consider for implementation.Identify “quick wins” that would reduce the cost and/or increase the efficiency of the State’s management of its real estate Review and benchmark State’s current practices related to the management of its real estate and provide recommendations for improvement.Project Objectives

3. 2To develop a real estate portfolio strategy, JL employed both qualitative and quantitative methods consisting of the three main phases outlined below and discussed in more detail in the following pages.Discovery + Current StateScenario DevelopmentPeer BenchmarkingPolicy RecommendationsFacilities Mgmt RecommendationsTechnology RecommendationsTelework and Portfolio RecommendationsPrivate Sector Best PracticesState Agency Efforts To-Date (DHS)Workplace Occupancy ScenariosAnalysis and AssessmentRecommendationsPortfolio Assessment (Building Scorecard)Occupancy/SF Impact AnalysisFinancial Analysis (Business Case)Surplus Property IdentificationPreferred Scenario(s)Interviews and Site ToursPolicy and Legislative ReviewCurrent State SummaryPortfolio ReviewFM and Tech ReviewScope and Process

4. 3MethodologyJLL’s Process evaluated the following:JLL conducted leadership interviews with state agencies to understand their use of real estate and expectations of the study:Agencies InterviewedAgency Leads InterviewedFM Specific DiscussionDepartment of Human ServicesXXDepartment of TransportationXCommissioners of the Land OfficeXState Bureau of InvestigationXXDepartment of HealthXDepartment of Mental Health and Substance Abuse ServicesXOffice of Management and Enterprise ServicesXXDepartment of Environmental QualityX

5. 4Portfolio OverviewJLL’s Reviewed the State’s Office Space Portfolio in Oklahoma City and Tulsa73State Owned Buildings64Leased Buildings3.5mSquare Feet of Office Space1.1mSquare Feet of Leased Office Space16%Avg. Rate State Pays Below Market Rate1.7mSquare Feet Managed by OMES$5.07*Per Square Foot OpEx in State Owned Buildings$16.41Average Rent Per Square FootOklahoma City Properties*Excludes utilities

6. JLL believes that the State can save over a hundred million dollars in real estate expenditures in the years following the adoption of the recommendations described in this report. These savings are illustrated by JLL’s analysis of the Oklahoma City portfolio which resulted in savings of $76 million and the ability to exit most leased spaces and consolidate into the Capital Complex. To achieve the savings requires the integrated implementation of several of the recommendations contained in this report. The key recommendations in this report address:Adoption of comprehensive telework programPortfolio reduction through telework adoptionSelection and implementation of technology solutionsAdoption of chargeback system for funding deferred maintenanceConsolidation of private sector facilities maintenance contractsEnforcement of State-wide adherence to real estate policies Summary of Recommendations5

7. Telework Finding and Recommendations6FINDINGThe State does not have a comprehensive all-agency telework policy. Senior management believes remote work has been very effective, with little loss of productivity and for some jobs, productivity has increased.IMPLICATIONSThe State would greatly benefit by thoughtfully developing a state-wide telework program to ensure the implementation of a comprehensive telework strategy that incorporates best practices and ensures continuity within and between state agencies.RECOMMENDATIONSEstablish a multi-agency task force to develop a statewide telework program and supporting policies.Involve HR, IT, and real estate to develop the program taking an integrated and holistic approach.Pilot the comprehensive program for proof of concept. BENEFITSA comprehensive telework policy will support attraction and retention of employees, significantly reduce real estate costs, improve access to talent in rural areas, improve overall productivity, and reduce stress on infrastructure.CONSIDERATIONSLearn from pilots currently underway (DHS/OMES), and other states adopting telework. Retain outside consultant support as needed.

8. 7To illustrate how the sample program can be utilized, a scenario for a 100-employee agency with 50% telework adoption is shown.The sample program forms the basis of the scenario shown in the following section.Illustrative Scenario at 50% Telework AdoptionIllustrative ScenarioScenario 3 50% Telework8 workstations for every 10 people79 Seats181 RSF / FTE18,067 RSF

9. 8To illustrate the physical and financial impact of telework, JLL modeled a scenario where the State exits out of leases and adopts 50% telework. Findings include:31Total leases exited123,000 SF exited out of owned buildings217,000 Total SF of exited leases5Total owned buildings exited308165RSF/FTE reduction with 50% telework adoption $39.2m33-year NPV$75.6mNet financial impactImpact of 50% Telework Adoption Scenario

10. 9JLL assessed several technology categories and has found that there is a lack of integration and redundancies across programs. Several tools acquired by the State are capable of doing the same tasks but are not necessarily being used in coordination with each other.Technology Finding and Recommendations

11. Technology Finding and Recommendations10FINDINGThe State does not have a cohesive strategy in the selection and deployment of real estate technology tools. This has resulted in agencies selecting and maintaining their own systems and datasets.  IMPLICATIONSThere is no single, state-wide source of record for real estate data. Improving the State's real estate portfolio will be extremely difficult without enabling technology. State employees do not have the technology required to implement a robust telework policy (e.g. space reservation tool). RECOMMENDATIONSEstablish Real Estate Information Technology Leadership Group to evaluate that will recommend technologies to enable a best-in-class real estate operation state-wide.  Select and implement technology solutions for space management, FM, and portfolio data across all State agencies. BENEFITSEnabling technology allows the State to understand portfolio-wide real estate data and measure performance improvements.Space management / reservation technology will enable a robust telework implementation.CONSIDERATIONSRetain consultant support as needed and ensure there is support for agencies who need assistance with change management.This could require an executive mandate.

12. Capital Planning Finding and Recommendations11FINDINGThere is a consensus between state facility managers and OMES that State assets have significant deferred maintenance which is currently underfunded. Information on this issue is dispersed among State facility professionals. IMPLICATIONSUncured deferred maintenance degrades the quality of the work environment for state employees and reduces the useful life of state-owned assets.Inconsistent deferred maintenance reduces the ability to understand facilities management costs across the portfolio.RECOMMENDATIONSAs telework policies reduce real estate costs, increase rent charges from OMES to support a deferred maintenance fund.Conduct a facilities condition assessment of all major state-owned buildings.Consider an equitable split of proceeds with agencies that dispose of under-utilized State assets.BENEFITSFully funding deferred maintenance reduces further degradation of owned facilities. Phasing additional space costs as agencies decrease space footprint could reduce political pushback. Centralized information will enable the State to prioritize deferred maintenance needs.CONSIDERATIONSConsider beginning with small rent increase of 75 cents/SF and slowly increase amount to $1.50/SF.Could require support from Governor’s office and will require funding.

13. 12The Maintenance Maturity Model addresses an agency’s operational maturity. JLL interviewed FM leads with OMES, DHS, and OSBI to discuss the agency’s current state and desired end-state. In this case, OMES self-rated as an organization overall in the “Predictive” category with a strong desire to progress to a “Reliability” position. JLL assessed that OMES is closer aligned currently in the “Planned” category. OMES is successfully fixing problems before they fail but could improve processes around predicting and planning repairs. A significant reason for this is that OMES and facilities management organizations in other state agencies are operating independently and are not managed uniformly by employing maintenance management best practices. Facilities Management Health Check (OMES Self Assessment)Facilities Management Findings

14. Facilities Management Finding and Recommendations13FINDINGAlthough the State operates within benchmark operating and maintenance costs for State run facilities operations, the State’s cost is at the higher end of the benchmark range partially due to the State’s ad hoc and fragmented vendor contracting. Operation and maintenance costs are higher than would be expected through an outsourcing.IMPLICATIONSThere is a lack of consolidated information on building operating costs outside of OMES-managed buildings.Fragmented data results in an inability to track KPIs and assess the efficiency and efficacy of facilities management assignments resulting in a higher State spend on facilities.RECOMMENDATIONSConsolidate all private sector facilities contracts into a single IFM contract.Pilot an outsource facilities management program at an OMES-managed building.Integrate FM technology into the Real Estate Information Technology Leadership Group to ensure statewide adoption of a CMMS system.BENEFITSConsolidation will likely yield cost savings and efficiencies. Outsourcing will provide the State with the ability to track KPIs for facilities management assignments.A single CMMS system will consolidate FM data enabling leadership to analyze facility performance. CONSIDERATIONSWill requires support from Governor’s office and political pushback may slow or prevent outsourcing.

15. Policy Finding and Recommendations14FINDINGThe State, through OMES, has several sound policies governing real estate operations elements. However, the State does not centrally enforce these policies, and agencies do not consistently adhere to them. IMPLICATIONSA lack of policy enforcement has created inefficiencies in the portfolio resulting in dispersed decision-making that creates an uneven workplace experience for state workers. Decentralized decision-making then results in dispersed data preventing the ability to systematically control costs. RECOMMENDATIONSEnforce current real estate policies and authorities vested in OMES.BENEFITSThese policies are designed to enable a more consistent and equitable use of space between agencies, and a more efficient overall use of space.Adherence to these policies will allow the State to better measure and manage State spend on real estate.CONSIDERATIONSThis will require the Governor to mandate agency adherence  to policy and could require business case for deviations from policy.

16. Bob HuntManaging Director, Public InstitutionsPhone: 206-354-1397Email: bob.hunt@am.jll.comBrian CarrollSenior Vice President, Public InstitutionsPhone: 312-228-3312Email: brian.carroll@am.jll.com